Editorial

• Pages: v-vi
• Published date: 01 June 2018
• Author: Des Kruger
• Record Number: btclq_v9_n2_a1
• Date: 01 June 2018
• DOI: 10.10520/EJC-f56680966

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editorial

DeS KRugeR

Debt and redeemable shares seem to be topical at the moment, as three of

the four articles in this edition deal with those topics.

First up is an article by Milton Seligson SC regarding the right of a

redeemable preference shareholder to enforce payment of the redemption

amount. The article notes that the issue of redeemable preference shares

is a common source of funding and has the advantage of being less costly

than direct loan funding. It also provides a source of tax-free dividends for

investors.

The article explores the enforcement rights of the holders of redeemable

preference shares against companies that issued them, by investigating the

limitations imposed on such instruments under the pertinent provisions

of the Companies Act 71 of 2008 and the previous Companies Act 61 of

1973, and examining the true legal nature of such shares with reference to

relevant case law.

Milton concludes that though the provisions of section 98 of the 1973

Companies Act have not been retained in the 2008 Companies Act, the

effect of the requirements imposed by section 46 of the latter Act on any

distribution by the company — which includes a redemption payment — in

principle means that section 46 of the 2008 Companies Act plays a similar

role to section 98 of the 1973 Companies Act. This is to restrict the enforce-

ability of redemption and to limit the shareholder’s remedy to an applica-

tion for the winding-up of the company where the board is unable to meet

the requirements of section 46 by reasonably concluding that the solvency

and liquidity test will be satisf‌ied after completing the proposed redemp-

tion and by adopting a resolution to this effect.

Leani Nortje deals with a very important issue regarding the application

of the anti-avoidance rule provided for in section 8E of the Income Tax Act

58 of 1962 (‘the Act’). Should section 8E apply, the dividends derived on a

hybrid equity instrument as def‌ined would constitute ordinary income in

the hands of the shareholder and is triggered if certain rights of redemption

are provided for in the contractual relationship established in respect of a

share. The crisp issue is: does a buy-back of shares by a company constitute

redemption of the shares as contemplated in section 8E of the Act?

Having considered the dicta in the case of A (Pty) Ltd v Commissioner for

SARS, the company law provisions that apply in the case of redemption and

buy-back, and the various meanings of the two terms, Leani concludes that

it is arguable that where shares are repurchased as opposed to redeemed,

the provisions of section 8E do not f‌ind application, because a buy-back